Economists call for accounting rules on environmental impact | Business| Economy and finance news from a German perspective | DW | 14.07.2010
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Economists call for accounting rules on environmental impact

Businesses and economic planners use elaborate systems to measure various types of capital including financial assets and human resources. Now UN-backed experts say they should take biodiversity into account as well.

Tourists view a whale from a boat

Many tourism operators rely on 'natural capital' to make money

With the oil leak in the Gulf of Mexico damaging regional fishery and tourism industries, authors of a UN-sponsored report linking business and biodiversity are calling on companies to count the cost of overexploitation of natural resources.

Society does not know how to quantify natural resources that have long been assumed to be limitless, according to Pavan Sukhdev, a Deutsche Bank economist and author of 'The Economics of Ecosystems and Biodiversity (TEEB)' report released Tuesday.

Sukhdev said that public 'natural capital' should be recognized as being as important as private financial capital. The report advocates creating a system of quantifying that natural capital.

Pavan Sukhdev

Economist Pavan Sukhdev says accounting rules should be changed to protect biodiversity

"We cannot manage what we do not measure, and we are not measuring either the value of nature's benefits or the costs of their loss," he told the AFP Tuesday.

In one example, analysts estimate the depletion of Atlantic fish stocks and the subsequent closure of Canadian cod fisheries in 1992 resulted in more than 760 million euros in lost annual income. Sustainable practices would have enabled the industry to continue.

Business and policy solution

Simon Upton, chairman of the Round Table on Sustainable Development at the Organization for Economic Cooperation and Development (OECD) in Paris, said well defined policies on sustainability would give companies "a very strong incentive to live within the quota, and live within it to maximize value."

"To the extent that we are preserving those ecosystems we are preserving the capacity to do business and look after social and economic wellbeing," he told Deutsche Welle.

Upton said he believes the extent to which companies should be held accountable for their use or misuse of natural resources should be decided at a national policy level. Those resources include land, water and forests.

"If a resource is regarded as unlimited and there is no system to regulate access to it… or some taxing mechanism designed to change the attractiveness of going after it… it's highly likely that industry will not be in the position to manage resources. The systems which are most at risk are apparently vast, apparently unlimited, and haven't attracted attention," he said.

A factory emits smog

The carbon offset market is expected to grow dramatically

But the TEEB report doesn't only emphasize regulation, according to Upton. It also highlights opportunities for companies to profit from sustainability.

For instance, the value of the certified agricultural products market may reach $210 billion by 2020, up from more than $40 billion in 2008. Also, financial offsets for biodiversity are expected to rise to $10 billion in 2020, up from $3 billion in 2008, while offsets for carbon and forests are expected to rise to more than $10 billion by 2020, up from $21 million in 2006.

Applies to most industries

Carsten Neshover, a researcher at the Helmholtz Centre for Environmental Research in Leipzig, said the need for biodiversity doesn't only apply to companies directly involved with natural resources, but also to services. The financial industry, for instance, would do well to pay attention to the commercial projects it finances.

"Companies also have to be aware because the risk they are posing is not only the risk of losing their resources, but also the risk of losing credibility, losing their brand," Neshover told Deutsche Welle.

According to Neshover, policies promoting biodiversity need not be a hindrance to global economy recovery.

"It's very important to see this is not just about risks, it's also about opportunities, because there are emerging opportunities," he said. "It's really a situation where business and policy have to get their act together. It shouldn't be left to the economy alone to decide on how to do this, and it's very important that policy gives a framework."

The political and social act of implementing the advocated policies, however, may prove difficult. Upton questioned why governments have yet to do so, despite the longstanding availability of information illustrating the necessity.

A wind farm and a field

Sustainable energy is an investment opportunity

"Actually implementing it means a change in the status quo. Economic instruments are really very clinical and very precise. They make it very clear who has a right to do what," he said.

"It actually puts a real value on things so people can see what they are worth. That often disrupts vested interests. If you've had free access to something forever, you're not going to be very keen on having to pay for it."

The full results of the TEEB study will be made public at the Convention on Biological Diversity in Nagoya, Japan in October. Tuesday's TEEB report was the third in a five-part series.

Author: Gerhard Schneibel
Editor: Sam Edmonds

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